Priority Questions.

Competition Authority.

Ruairí Quinn

Question:

59 Mr. Quinn asked the Minister for Enterprise, Trade and Employment if his attention has been drawn to the practice in many market sectors of exclusive distribution contracts for specific products or product lines; if his further attention has been drawn to the fact that such contracts often divide the European Single Market into sections by country or group of countries; his views on whether such exclusive distribution contracts, which prevent, for example, an Irish company purchasing machinery from a German supplier at the rates prevailing on the German market and instead forces it to purchase from whomever has the exclusive distribution rights for Ireland, are against the rule and spirit of the Single Market; the steps he intends to take to protect small and medium business owners, who are most affected by this problem, from this behaviour; and if he will make a statement on the matter. [18564/06]

Minister for Enterprise, Trade and Employment (Mr. Martin)

I welcome the first opportunity to answer Deputy Quinn's queries on Question Time and hope we will have constructive engagement in the context of his portfolio.

My attention has not been drawn specifically to this matter. However, the Competition Act 2002 prohibits anti-competitive arrangements between undertakings and the abuse of a dominant position by undertakings. The Competition Authority was established by statute and one of its functions is to enforce the Act. It is also empowered to apply Articles 81 and 82 of the EU treaty as well as national competition law provisions where the agreement or conduct being examined may have an effect on trade between member states.

It would appear the products referred to in the question are distributed throughout the EU under exclusive distribution-type agreements. The main feature of such sole distributor or exclusive distribution agreements is that the manufacturer or supplier generally agrees to supply certain goods for resale to only one party, the exclusive distributor, within a defined territory and no other party will be supplied with the goods within that area.

Generally, competition law does not prevent manufacturers, wholesalers or retailers from entering into or concluding exclusive distribution agreements. European and Irish competition law permits such agreements, provided certain conditions are met, on the grounds that the beneficial aspects of such agreements outweigh their anti-competitive effects. The relevant guidance for making this assessment where there is an effect on trade within the European Union is contained in EC Regulation 2790/99 and the accompanying EU guidelines on vertical restraints. Where the effects of the agreement are confined to the State, the Competition Authority's declaration in respect of vertical agreements and concerted practices applies. The authority's website, www.tca.ie, provides comprehensive information in this regard.

I accept that prices for similar products continue to differ significantly across the European Union despite the existence of the Single Market. Competition law cannot prescribe how a particular company determines how to distribute or price its products throughout the EU, which remains the prerogative of the individual firm. Price differentials between geographic markets may occur for a variety of reasons. For example, local supply and demand conditions and the number and type of competitors in each market may differ. Further differences might exist in marketing, distribution and transportation costs or the degree of rivalry among competitors in local markets.

However, I understand the EU Commission and courts have previously considered and ruled on matters such as restrictions on passive selling by distributors in an exclusive distribution network. Therefore, I would encourage anyone who feels aggrieved as a result of such an exclusive distribution agreement to contact the Competition Authority or the Commission directly.

Mr. Quinn

I thank the Minister for his reply and kind remarks. Ten or 15 years ago, it was normal practice for a particular company as a wholesale distributor in any member state to get the exclusive right to purchase the product from the manufacturer and be the sole sales agent into the retail trade across the territory of, for example, the Republic of Ireland. Consequently, all retailers were buying from one distributor at the same basic price subject to the normal laws of discount, volume and so on.

Is the Minister unaware of a practice that has arisen whereby large multiples, be they Aldi, Lidl, Woodies or anyone with substantial purchasing power, can go directly to the manufacturer of the product in question? In the case I am citing, the details of which I can give the Minister, the manufacturer is German. Due to the bulk volumes involved in selling to large retail outlets, the large retailer operational in Ireland can sell at a price less than the wholesale price at which a domestic retailer can purchase from the distributor.

The distributor in this case, an Irish company based in Tallaght, has the sole right to buy from the German manufacturer and sell into the Irish market. If the Minister and I, as competing retailers, wanted to go to Germany to buy that product at domestic volumes instead of large, Woodies-type volumes, we would be prevented from doing so because of the legal contract between the German manufacturing company and the Irish domestic distributor, who is essentially a middle-man. No more, no less. No value is added other than warehousing. In many cases, the products are shifted straight from the manufacturer in Germany to the retail premises in question. Is the Minister saying that in these circumstances, the only redress available to the Irish retailer is to go to the Competition Authority or access the legislation to which he referred?

Mr. Martin

Yes. I need to get the details of the specific case. If the Deputy provides them, I will ask my officials to scan through them and determine if there is any basis on which to send the case to the Competition Authority. The retailer in question could do so also.

From my observation of the brief before me, if a domestic company went unsolicited to Germany to make a purchase, a refusal to sell could be contrary to EU competition law. This matter could be explored. On the wider issue, there is competition across the EU and situations such as that described can materialise. I would like to see the full details of the case. My Department will examine it and determine to what degree it may contravene EU competition law.

Mr. Quinn

I thank the Minister for his reply and I will happily give him the individual details. They may be of interest to his colleague, the Minister of State, Deputy Killeen, because the company is based in a town in County Clare.

The practice is widespread and has been for decades. This was the way business was traditionally done. The arrival of big multiples in this sector, such as those I mentioned, has changed the set of circumstances. Previously, if the Minister or I had gone as retailers to a manufacturer in Britain, France or Spain to purchase into our own market, we would have been told "No" and that we needed to deal with such and such a person who had the agency for Ireland.

This was fine if no one else was bringing the product into Ireland, as the same price was being charged, by and large. One can see the colour advertisements for the likes of Lidl and the relative differences in price, which are significant. Irish retail distributors and shop outlets cannot access those types of products at the prices Lidl does due to the volume involved. The viability of many small retail outlets across the country is at risk.

Mr. Martin

The other side of that coin is that some of these exclusive arrangements can be detrimental to competition and competitive pricing. They could have had the impact of keeping prices artificially high. We held a significant debate on this matter in the context of the groceries order and so forth.

There is no question that the market has changed. The convenience sector has grown considerably. From appearances, it seems that price is not a determining factor. Convenience, however, is a factor in that people continue to pay over the odds but are happy to do so because of access issues and so on. I would be interested, in the context of competition law, to see if there are breaches and if people are being discriminated against by the practices of certain firms.

Health and Safety Regulations.

Arthur Morgan

Question:

60 Mr. Morgan asked the Minister for Enterprise, Trade and Employment if he will introduce regulations to oblige employers to notify the Health and Safety Authority of any occurrence, including exposure to noxious substances, at a place of work as a result of which a worker is prevented from performing his or her work for more than three consecutive days, as is the existing situation with regard to the obligation to report accidents. [18566/06]

Minister of State at the Department of Enterprise, Trade and Employment (Mr. Killeen)

The current specific regulatory provisions on the reporting of occupational accidents and specified non-injury dangerous occurrences to the Health and Safety Authority are set out in the Safety, Health and Welfare at Work (General Application) Regulations 1993, SI 44 of 1993. Under those provisions, an accident is reportable where it results in a fatality or where the injured employee is unable to work for more than three consecutive days, with weekends and other normal days off for the employee included when calculating the period of absence.

There was no specific definition of "accident" or "injury" in the legislation when the general application regulations of 1993 were made. However, in the Safety, Health and Welfare at Work Act 2005, which came into operation on 1 September 2005, I introduced definitions of "accident", "dangerous occurrence" and "personal injury". The definition of "dangerous occurrence" includes the uncontrolled or accidental release or the escape or ignition of any substance, which would include noxious substances.

The Safety, Health and Welfare at Work (General Application) Regulations 1993 are under review by the Health and Safety Authority. Proposals for new general application regulations, including revised provisions relating to the reporting of occupational accidents and diseases, were issued for public consultation by the authority in 2005, in accordance with section 57 of the 2005 Act. I expect that the authority's proposals for the regulations will include revised statutory requirements for notification which will be in line with the revised definitions in the 2005 Act.

Mr. Morgan

In raising this matter, I am trying to ensure that more data are gathered so that we have a better picture of what is occurring in the workplace, and exposure to noxious substances is an important issue in that regard. According to international studies, work-related disease is a far greater burden than workplace injury. Obviously, work-related disease takes much longer to emerge. I ask that the information gathering system on health and safety in the workplace be improved.

Work-related deaths, for example, may not occur until long after the person has left the place of work. Asbestosis is an obvious case in point, where the worker will probably work to retirement but possibly will die very quickly thereafter. There is no requirement for reporting cases like that and perhaps the Minister of State will take that on board.

Mr. Killeen

The Deputy's question is timely, given that the general application regulations are under consideration and that specific definitions are included in the 2005 Act. There are two current provisions relating to asbestosis, for example, but they require updating. Deputy Morgan is right in saying that we need far better research in this area to enable us to draw up regulations that are suitable for circumstances he has outlined.

Mr. Morgan

The Minister of State seems to agree with me, which makes a change. Will he keep an eye on this matter and bring forward amendments to the regulations to improve the current situation?

Mr. Killeen

The construction regulations are with the parliamentary counsel. I expect the Health and Safety Authority to submit a draft of the general application regulations soon, which will be forwarded to the parliamentary counsel. I wrote to the clerk of the Joint Committee on Enterprise and Small Business offering to give a briefing to that committee on the construction regulations and to hear its views on the matter. If the Deputies wish, I will do the same with regard to the general application regulations when they become available.

Grocery Industry.

Phil Hogan

Question:

61 Mr. Hogan asked the Minister for Enterprise, Trade and Employment his views on the recent survey which has indicated an increase in the price of grocery products; and if he will make a statement on the matter. [18563/06]

Mr. Martin

I am aware of recent media reports referring to a survey indicating that the cost of grocery goods has increased. There are many inputs into the final price paid for grocery products by consumers, including many outside our control. I note that the Central Statistics Office has identified high fuel prices, the introduction of higher interest rates by financial institutions and increased transport costs as some of the main contributory factors to recent price increases.

The market will take some time to adapt to the changed legislative environment in the grocery trade and I have asked the Competition Authority to monitor the sector following the repeal of the groceries order on 20 March 2006. The authority is putting in place a monitoring mechanism to track data and trends over the coming months and years. While the authority is undertaking this project in accordance with its independent statutory functions, it has agreed to meet various players in the grocery trade to inform the process.

I expect the removal of the groceries order to stimulate competition and drive increased efficiencies at all levels of the distribution chain from which consumers will ultimately benefit.

Mr. Hogan

Does the Minister accept that the survey carried out recently by www.shoppingbill.com is a clear reflection of what is happening in the grocery trade, where everyday items such as eggs, butter and tea have become more expensive in the past six weeks? Contrary to popular belief, all evidence suggests that grocery prices will continue to rise rather than fall. In view of the statements made by the Competition Authority that the average household would save €500 per annum if the groceries order were abolished, a report accepted by the Minister, I ask him to indicate the changes to the Competition (Amendment) Act that are necessary to ensure that discounts and rebates are passed on to consumers rather than being pocketed by large supermarkets.

Mr. Martin

The decision to abolish the groceries order was not based on the Competition Authority report nor the consumer strategy group's report but on a comprehensive report prepared by my Department, which was circulated to Deputies at the time. That report stated:

. . . we don't believe that it is possible to predict in any meaningful way the precise extent of such price reductions. Ultimately, that will be a function of a variety of factors including the amount of off-invoice discounts that are available for transfer back to the invoice, the actual level of net margin obtaining in the retail trade currently, and the extent to which resulting competitive forces will drive efficiencies at all levels of the production and distribution chain.

Other extraneous factors, including input costs and consumer demand, also impact on retail prices and make it difficult to isolate the impact of any one factor such as the ban on selling below net invoice price.

That is what the Department stated on the record prior to the decision to abolish the groceries order. The Department's report also showed that over a ten-year period, prices rose by 30% in those EU countries which had restrictions on grocery prices, but only rose by 13% in those countries with no such restrictions.

What we have done is removed a barrier to competition. The market, in time, will have to develop and drive its efficiencies in that regard. I have asked the Competition Authority to examine the issue. If one was to attempt, through legislation, to compel companies to transfer discounts back, which would be extraordinarily difficult, one could develop a system of price fixing, which is illegal and non-competitive. During the debate on the Competition (Amendment) Bill, no meaningful amendment was tabled to put in place a vehicle or mechanism to give effect to such a compulsion. It is simply not possible and it would not be correct to do so.

Mr. Hogan

The Minister knows that the commitments he made are not being honoured with regard to prices in the grocery trade. The Minister stated at the launch of his report in November: "We want to make it very clear that the existence of the order maintained an upward pressure on prices and we would argue that its removal will ensure that there is a downward pressure on prices". Prices have risen so obviously we did not get it right. The Minister's views may not be shared by everybody with regard to how we should tackle this issue. Everybody wants to see the benefit of any squeeze being put on small suppliers passed on to consumers. Such a squeeze is happening now more than ever because of the lack of protection for such suppliers in the Act and the lack of interest the Minister displayed in banning predatory pricing. We are now in a situation where there is less choice and less diversity, and, according to the first survey since the groceries order was abolished and the new Act was enacted, basic household products, such as eggs, butter and tea, have increased in price.

We are not getting it right with regard to ensuring that the consumer gets the benefit of repeal of the order. Fine Gael tabled an amendment, which the Minister chose to ignore, as is his prerogative, to ensure that savings, discounts and rebates would be passed on to the consumer. The Minister chose differently and now the large supermarkets like Tesco and Dunnes Stores will reap the benefit of any squeeze on suppliers in terms of higher margins and profitability.

Will the Minister accept that an amendment to the Competition (Amendment) Act is required to ensure that consumers get the benefit of the repeal of the groceries order and that it is not, as some commentators have suggested, simply a question of consumers sending e-mails to Dunnes Stores and Tesco?

Will the Minister examine the Casual Trading Act? The Act was identified as a mechanism through which local producers could sell local produce fresh to a local market place in every town and village. Changes to the Act may have to be considered because it is in operation ten years, since 1996. It is a separate issue through which we could have another means of getting fresh grocery products to the marketplace in localised areas to the benefit not only of producers but also of consumers.

Mr. Martin

I find the Deputy's position illogical. By implication, he attempts to suggest for political reasons that removing a legislative mechanism which put a ceiling below which people could not sell——

Mr. Hogan

That is what the Minister stated.

Mr. Martin

——has facilitated the increase in grocery prices.

Mr. Hogan

We see the result of what the Minister did.

Mr. Martin

It is an illogical position to adopt. The Deputy and the world outside know that a multiplicity of factors are involved, such as oil price increases.

Mr. Hogan

There was no problem when the Minister was introducing the legislation.

Mr. Martin

I did not interrupt Deputy Hogan. If the price of a barrel of oil continues to increase at the rate at which it has over the past 18 months, does the Deputy seriously suggest that it will have no impact on prices? It would be foolish to suggest it would not.

Dáil Éireann debate - Wednesday, 17 May 2006